Illiquid investments ‘may take their toll’ on European insurers

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Asset risk has been identified as the most concerning risk for European life insurers as their illiquid investments could trigger impairments until 2025, according to Standard & Poor's.

Several external factors could attribute to the situation including economic growth fragility, escalation and broadening of the Russia-Ukraine conflict and higher interest rates, all of which were considered at ‘high’ risk level by the ratings agency. 

S&P said although all EMEA life insurers it rates “display at least adequate liquidity”, their exposure to illiquid investments in real estate, private equity and private debt might trigger impairments in the next two years.  

Volker Kudszus, S&P Global Ratings' sector lead for insurance ratings, said: “We remain cautious over life insurers' illiquid investments in real estate, private credit, and private equity, which may take their toll over 2023-2025.”

In the UK, Milliman has found “many” life insurers aim to increase exposure to illiquid assets but did not specify the share of firms doing so. 

The consultancy added asset mixes varied considerably among life firms but that the overall picture is of a “relatively stable core group of asset types”. 

“Origination of new asset types is limited and focussed on commercial ground rents, commercial real estate loans and some other asset classes”, said Milliman in its 2023 Illiquid Asset Survey, which polled seven major UK life insurers. 

The consultancy noted many of the participants are reassessing their asset allocations to illiquids given the recent substantial changes in economic conditions, with some considering illiquid assets relatively less attractive.

According to mallowstreet’s proprietary report, Insurance Report 2023, the role of illiquid assets is poorly understood by UK insurers.

Will you increase or maintain allocations to illiquids this year?

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